Welcome to Country Level Economics: Macroeconomic Variables and Markets!

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En provenance du cours de University of Illinois at Urbana-Champaign

Country Level Economics: Macroeconomic Variables and Markets

228 notes

University of Illinois at Urbana-Champaign

Country Level Economics: Macroeconomic Variables and Markets

228 notes

Cours 3 sur 7 dans Specialization Managerial Economics and Business Analysis

This course discusses how macroeconomic variables affect individuals’ personal, professional, and public activities and lays the foundation for the analysis of the mechanisms that drive macroeconomic variables. It start in its first module by introducing the key macroeconomic variables and explaining how they are defined and measured in order to enable the students to interpret macroeconomic data properly. In the second module, the course offers a perspective for separating out various parts of the economy driven by different processes and for combining those components to develop a richer view of the whole. In particular, it applies this approach to the analysis of the relationship of the trade deficit with the budget deficit and private savings, offering insights about some key determinants of the balance of payments. The third and fourth modules focus on the analyses of the foreign currency and money markets to provide fundamental models of the interest rate and exchange rate determination. They also discuss how these variables interact with each other and with the macroeconomic conditions, particularly monetary policy and the expectations about the future trends in the economy. These analyses lay the foundation for more comprehensive models of the macroeconomy in the next course of the Managerial Economics and Business Analysis Specialization. At the end of this course, you will be able to: • Systematically assess the national and international economic environment in which you live and work. • Analyze macroeconomic issues using key tools. • Be a more effective professional in your line of activity. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

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Course Orientation

You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.

Welcome to Country Level Economics: Macroeconomic Variables and Markets!7:38

Rencontrer les enseignants

Hadi Salehi Esfahani
Professor of Economics and Professor of Business Administration
Department of Business Administration, College of Business

Welcome to the University of Illinois Country Level Economics course.

Macroeconomic variables and markets.

This course is the first part of a two course series on

macroeconomics for business.

Macroeconomics is a very exciting subject to study especially these days.

Macroeconomics help us better understand total income in the country,

inflation rate, unemployment rate, exchange rate, interest rate.

Understanding how these variables are determined

is a bit complicated because they interact with each other and

they interact with thousands of other variables.

So let me give you an example of how one can

see the complexity in the interaction among these variables.

Let me start with this case.

On November 6, 2015 the Bureau of Labor and

Statistics announced that the US economy had generated

271,000 jobs in October of 2015.

That's well above average and

unemployment rate has remained unchanged at 5% at the time.

Which means that while more jobs are being created,

more people also had entered the labor market.

This sounded like a good piece of news for the economy at the time.

However, if you look at what happened in the stock market,

the reaction was negative.

All stock indices fell in the week after the announcement on November 6th.

Why would this happen?

Participants in the stock market probably looked at the data and

thought that the Federal Reserve board looks at the same data and

decides that the US economy is heating up or will be heating up and

therefore will start raising interest rates faster.

And if you are an investor,

you want to keep your money for investing in bonds in that situation.

Therefore you try to take your money out of the stock market.

That's a possible explanation for what happened here and

it's also consistent with what happened to the exchange rates.

The US dollar grew stronger relative to the Euro.

The euro fell relative to the dollar

because people were expecting interest rates to go up in the United States and

therefore, holding US dollar would be more profitable.

And therefore, some investors switched from Euro to the US Dollar and

pushed up the value of the US Dollar.

But the situation, in fact, is a bit more complex than what appears here.

In fact, this kind of effect does not always show up

when unemployment rate goes down or employment improves.

For example, let's take a look at the announcement on May 2017 by The Bureau

of Labor and Statistics about the job market in April of 2017.

211,000 jobs were generated in that month,

and unemployment rate fell to lowest level in ten years, 4.4%.

But this time the stock market in fact went up and

the dollar also fell rather than becoming stronger as we had seen before.

The reading of this situation was different

because the conditions were different.

And understanding how those conditions, what factors come in and

shape the expectations of investors in the stock market, participants

in the foreign exchange market is very important, and rather complicated.

So when we study macroeconomics, there are lots of questions we ask.

For example, we want to know whether economic growth will continue or

not, how fast it's going to continue,

how long will interest rates remain at their current range?

Will we ever see a budget surplus again in the economy?

Do tax reductions, in the past or being proposed,

deficits spending can help the economy or hurt the economy?

How do fiscal and monetary policies affect economic conditions now and in the future?

These are the kind of questions that we are going to be addressing in these two

courses and we are going to start with microeconomic variables and

markets in this course.

We want to know what's also going on in other economies.

And how those economies affect ours, how our economy affects the rest of the world.

Macroeconomics is also concerned about why production and

employment go up in some years, go down in some years?

Why inflation is higher in some years compared to others?

And how do inflation, income level, interest rate,

exchange rate interact with each other?

And also, what are the roles of the key variables, policy variables like

interest rate or exchange rate, in determining income and employment?

Another set of questions is,

why average income is higher in some countries compared to others?

Why some countries grow faster than others?

And we also would like to know how economic performance in

various countries interact with each other.

To summarize, concerns about economic conditions is universal.

People all over the world are concerned about their economic conditions and worry

about these variables that we've discussed and we will be studying in this course.

The purpose of this course is to help you make better decisions in your personal,

professional, and public life.

To be able to make better decisions you need to be informed about

how macro-economic variables affect what you want to do.

You want to know also how macro economic variables are determined so

you can predict them, understand where they're going.

And also you want to understand what are the key policies and

other factors that shape macro economic variables.

The objective of the course is to help you better understand the macro

economic environment in which you live and

work, both in the country you live in and also globally.

This course provides you with the key tools you need to carry out such analysis,

and hopefully, it will make you more effective decision makers,

particularly better professionals.

So what do we do in this course to help you learn these tools?

First we are going to start with learning about macroeconomic variables,

their measurement, and their interpretation.

Second we're going to look at components of GDP, how different parts

of the economy interact with each other and how we can measure different parts of

the economy separately and then put them back together.

We're going to learn about how the exchange rate affects the macroeconomy and

how in turn macroeconomic conditions determine the exchange rate.

And finally we're going to be looking at how interest rate

is determined and how the money market works.

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